What is the Alternative Minimum Tax (AMT)?

In simple terms, the alternative minimum tax (AMT) is an additional tax that is calculated separately from a taxpayer's regular tax and paid in addition to the regular tax. The AMT system is based on the regular income tax system, but AMT is calculated independently from regular tax. Under the AMT system, certain regular tax deductions are disallowed or allowed over a longer period of time. In addition certain income items that are not included in regular taxable income are included in alternative minimum taxable income (AMTI) and some income items are included in AMTI in an earlier period than in regular taxable income. The tax rates under the AMT are also different. Under the AMT, an individual taxpayer is subject to rates of:

- 26% for AMTI of $186,300 or less for taxpayers filing single, married filing jointly, or as a qualifying widower or $93,150 for taxpayers filing married filing separately in 2016 ($185,400 and $92,700 respectively in 2015, $182,500 and $91,250 respectively in 2014, $179,500 and $89,750 for 2013 and $175,000 and $87,500 for 2012 and earlier years); and
- 28% for AMTI over these amounts for each year.

As discussed in the section Outline of AMT Calculation, below, the amount of an individual taxpayer's AMT is the difference between his tentative minimum tax calculated under the AMT rules and his regular tax amount. If the taxpayer's tentative minimum tax amount is lower than his regular tax amount for the year, the taxpayer does not owe any AMT.

NOTE: If the taxpayer owes AMT (i.e., the taxpayer's tentative minimum tax amount is greater than his regular tax amount), the total amount of tax the taxpayer will pay is equal to his tentative minimum tax amount. However, for a number of reasons, it is important to remember that

technically, only the amount of the tentative minimum tax in excess of the regular tax amount is considered AMT.

AMT Exemption: Because the AMT is intended to ensure that high income taxpayers pay a minimum amount of income tax, a special AMT exemption deduction is allowed for taxpayers with AMTI below a certain level. The AMT exemption prevents most but not all lower and middle income taxpayers from being subject to the AMT. To prevent higher income taxpayers from benefiting from the AMT exemption, the exemption is phased-

Minimum Tax Credit: As noted above, the AMT rules cause some deductions and income to be recognized in different years for regular tax and AMT purposes. When a taxpayer pays AMT due to a difference in timing of a deduction or an income item between the two systems, the taxpayer is generally entitled to a minimum tax credit which can be used to offset regular tax (but not AMT) in a future year. The minimum tax credit is calculated on Form 8801.

NOTE: No credit is allowed for income or deduction items that cause a permanent difference between AMTI and regular taxable income (for example, state income taxes, which are allowed as a deduction in

calculating regular tax but not in calculating AMT).

Under the AMT system, a taxpayer must determine his or her alternative minimum taxable income (AMTI) using the separate AMT rules. Because the calculation of AMTI is based on the calculation of regular tax income, the calculation (which is done on Form 6251) begins with the taxpayer's adjusted gross income (if the taxpayer claims a standard deduction) or the taxpayer's adjusted gross income less itemized deductions if the taxpayer itemizes. The taxpayer adds or subtracts any AMT adjustment or AMT preference items to determine AMTI.

The taxpayer then applies the AMT rates to his or her AMTI to determine his or her tentative minimum tax. The tentative minimum tax is reduced by any AMT foreign tax credit available to the taxpayer. If the taxpayer’s tentative minimum tax (after applying the AMT foreign tax credit) exceeds his or her regular tax, the excess of the tentative minimum tax over the regular tax is the taxpayer’s AMT.

The basic formula for calculating AMT is as follows:

NOTE: This formula is for use only in estimating the amount of a taxpayer’s AMT liability. In order to determine the actual liability, Form 6251 must be completed.

Start with: Regular Taxable income

Add or subtract AMT Adjustments

Add AMT Preference items

Subtract AMT Exemption

Equals Alternative Minimum Taxable Income (AMTI)

Multiply AMTI by AMT rates

Equals Tentative Minimum Tax (before credits)

Subtract AMT Foreign Tax Credit

Equals Tentative Minimum Tax

Subtract Regular Tax

Equals Net Alternative Minimum Tax

If the net alternative minimum tax is a positive amount, the taxpayer must pay this amount in addition to his or her regular tax (less applicable non-

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